The North American manufacturing industry is in the midst of a triumphant comeback. Manufacturers have added a healthy 800,000 new workers over the last two years, swelling the overall ranks to 13 million jobs, according to a June 2023 report on Forbes. With construction spending from manufacturers soaring 71% in July 2023 over a year earlier, Nobel Prize-winning economist Paul Krugman has announced the beginning of a so-called “manufacturing boom” in the United States.
There are many driving factors for this growth, from federal incentives to increased consumer demand, advances in technology, and an economic reaction to struggles in the global supply chain. Here’s a closer look at what North American manufacturing means to the U.S. economy, why an industry long-lamented as dead is rising again, and where it’s headed next.
The growth of U.S. manufacturing is poised to have a major impact on the economy at large. Recent data from McKinsey shows that while it represents just 11% of U.S. GDP and 8% of direct employment, the manufacturing sector makes disproportionately large contributions to the economy. For example, U.S. manufacturing is responsible for:
Below is an expanded look at the insights McKinsey assembled from US Bureau of Labor statistics.
Source: McKinsey
American manufacturing experienced a golden age in the 50s and 60s, gradually declining in the decades since. However, all signs are pointing to a resurgence with an all-new look for industry processes and workers. The explosion of automation, CNC machinery, and higher learning has made it possible to create new jobs with more highly skilled operators.
Electric vehicles and semiconductors are — as expected — a major force in this new growth. And yet, North American manufacturing has also grown across niche markets from eyeglasses to bicycles, body-building supplements, and even socks.
Put into an international context, we see that this surge is uniquely American and not mirrored in other advanced economies. Take a look at these three charts from the U.S. Department of the Treasury, which track the disparity between recent domestic and international manufacturing trends (measured in billions of 2022 dollars).
It seems that other advanced economies are not experiencing the same sort of rise-from-the-ashes growth, when comparing similar data sets that measure some sort of real construction for the purpose of manufacturing. The floor area of new manufacturing in Japan remains below pre-pandemic levels. For a decade now, Germany’s spending on real new construction for factory and workshop buildings has been in a relatively stable decline. North American manufacturing stands on its own in the surge of the past few years.
Americans love to buy American. The increasing consumer demand for U.S.-manufactured products has been a major boon for the industry. Customer expectations for products are rising, and American-made products have a reputation for quality.
2. Federal Incentives & FundingU.S. policies such as tariffs, tax incentives, and financial investments (such as the CHIPS and Science Act), have primed domestic manufacturing for strong growth.
Robotics and advanced CNC machines have helped U.S. manufacturers to gradually eliminate the strategic advantages of cheap foreign labor, all while transforming American workers from assembly line drones to highly skilled operators.
The costs of shipping and logistics with overseas partners are more than financial — they’re environmental. Evolving regulations on emissions are influencing supply chains to keep things closer to home and improve sustainability metrics.
Supply chain reliability has been a major motivator for recent onshoring efforts. Global trade disruptions from the pandemic encouraged a fresh look at manufacturing supply chains. As The Wall Street Journal quoted Chris Snyder, an analyst for UBS industrials: “Covid kind of pulled the covers off and showed everybody how much risk they were exposed to.” North American manufacturing allows for shorter, more resilient, and more adaptable supply chains.
Despite concerns in recent years, economists have become increasingly optimistic that the U.S. may be able to avoid a recession in the near term. Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters that "the soft landing narrative still holds as we enter the final quarter of 2023."
Even if we do enter a recession, leading voices like Scott Paul, president of the Alliance of American Manufacturing, believe that mass layoffs could be avoided due to “public policies that spurred infrastructure investments, manufacturing demand, and clean energy incentives,” per a CNN report.
The bottom line is that the outlook for North American Manufacturing is bright, and businesses in the industry should be in good spirits. This is an excellent time to invest in business growth, innovate, and look to the future.